Southwest Airlines Case

COMPANY NAME: Southwest Airlines.

INDUSTRY: Air Travel.

COMPANY WEBSITE: (www.southwest.com)

COMPANY BACKGROUND:

Southwest Airlines Co. incorporated in 1967, is a passenger airline that provides scheduled air transportation in the United States. As of December 31, 2010, the company had 548 Boeing 737 aircraft serving 69 cities in 35 states (Southwest Airlines Company profile, 2011). Key officers include:

Herbert D. Kelleher - Founder and Chairman Emeritus.

Colleen C. Barrett - President Emeritus.

Gary C. Kelly - Chairman, President & Chief Executive Officer.

The Company functions primarily on point-to-point service rather than focusing on hub and spoke service. About 78% of the passengers of the airline travel on non-stop flights and the Company predominantly serve short-haul routes with flights operating highly frequent. (Southwest Airlines Company profile, 2011)

SWOT ANALYSIS:

Strengths: By far the biggest strength of Southwest Airlines is the ability of the company to offer reliable low-cost prices; they are also able to maintain lower operating cost which enhances its profitability. They were the first to introduce online booking, ticket less traveling, and no reserved seating, thus making it easier to turn around flights. The teamwork and efficiency within the company's employees is widely recognized as one of the reasons for Southwest's high ticket sales.

Weaknesses: At this time only domestic flight are being offered with no direct flight away from the United States. The airline does not offer some of the services that the other airlines offer such as, first class cabins, lounges, in-flight entertainment, or reserved seats. The labor force is highly unionized with different union associations across pilots, technicians and service providers. They only use Boeing 737 aircraft, which can cause conflicts in connecting flights or airports. (Tim Smith, 2011)

Opportunities: The acquisition of AirTran will enable the company to enter into international flights. (Southwest Airlines, 2011) Longer flight are being introduced, with business class preferred seating now available.

Threats: Competitors are now offering low cost online booking fares only, and sites such as Hotwire, Expedia, and Travelocity are partnering with these airlines. The political atmosphere in Washington D.C. will most likely force ticket prices higher. Gas and oil prices continue to be volatile which will contribute to already rising operating cost.

PORTER'S FIVE FORCES MODEL:

Threat of new entrants: In the airline industry there are high entry barriers; one of the major factors is the substantial capital costs involved. But however this has not deterred new firms entering the industry. Other threats of entrants can come in the form of major carriers already in the business forming regional and low cost alternatives such as Jet blue airways.

Bargaining Power of Buyers: The bargaining power of the consumers has definitely increased with the availability of more information though internet which acts as a shopping and distribution alternative for the consumers. One of the reasons for the increased bargaining power of consumers is that the individual buyers incur virtually no switching costs when they decide to purchase from one manufacturer rather than another.

Bargaining Power of Suppliers: The bargaining power of suppliers is relatively low; there are only two major suppliers of aircraft in Boeing and Airbus. Fuel cost are regulated by changes in gas and oil prices. Airport charges and government fees are both regulated by the FAA. (Tim Smith, 2011)

Substitute Products/Services: The availability of substitute products is quite high. The internet has provided the consumer with many different options with little effort required on the buyers end to stay loyal to one company. It is simply a question of price and consumer satisfaction that drives sales.

Intense Rivalry: There is an intense competitive rivalry between competitors like United, Alaska, American, Delta and other major airline companies. Airline service has become a commodity in that the price variable is a primary source of competition among the industry participants. Southwest Airlines operates at such a low cost